The current mortgage rate has reached an all-time high of 7.0%. Mortgage refinance applications have dropped by 7.8%. Hence, refinancing your historically low mortgage rate may not be a good option now, especially after divorce.
Refinance means taking a new loan to replace the current one with revised terms. This could include a change in loan tenure, mortgage rate from variable to fixed or accessing equity.
Currently, refinancing may not be practical due to the high rate of 7.16%. If that gets you an emotional closure then discuss, it with a professional lender, to get suitable suggestions. Browse for the expert lenders near you.
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How To Refinance Your House After A Divorce
Confirm with your divorce attorney whether refinance fits your divorce settlement. Refinance after a divorce can have serious implications on your finances. However, doing it correctly can benefit you better.
- Know Your Current Mortgage: Primarily, check your house mortgage details. Find out the interest rate, balance loan amount, loan tenure, early repayment penalty, etc. This will help decide if you should refinance your mortgage.
- Determine Ownership: Discuss the house’s rights with your ex-spouse. If you decide to keep the home, refinance will purely be in your interest.
- Evaluate Your Financial Capability: Calculate your income, expenses, and savings. Confirm if you can handle the monthly mortgage payments by yourself. Also, keep some funds ready for closing costs if you decide to refinance.
- Shop for Lenders: Find out different lenders and compare their refinance services. Consider their interest rates, fees, and customer reviews before starting the process. And ask for the list of documents they need from you.
- Gather Necessary Documents: Collect the refinance papers as suggested by your shortlisted lender. The basic documents may include bank statements, tax returns, income proofs, etc. The mortgage lenders will review these documents and process your refinance.
- Determine the Benefits and Risks: Lower interest rates, shorter loan tenure, or equity share, are your financial advantages. However, be aware of possible refinance costs, such as closing fees or a longer repayment period.
- Start the Refinancing Process: Once you’ve gathered all the necessary information, submit your application to the chosen lender. Work closely with the lender, provide additional documents if asked, and follow the refinancing steps until closing.
4 Reasons to Refinance After Divorce
Below are the reasons to refinance after a divorce:
- Remove Ex-Spouse’s Name from Mortgage: If you and your ex-partner jointly own the property then, refinance will eliminate their right. It will allow you to take full ownership of the property. Down the line, this will sidestep any ownership confusion.
- Reduced Interest Rate: Refinancing allows you to secure a lower interest rate. This will save you money with lower monthly payments.
- Lesser Loan Term: You will be able to modify the loan tenure. Choose a shorter term to pay off the house faster and save on interest. Or, choose a longer term for lower monthly payments to free up your cash now. Make a wise decision that suits your requirements.
- Change Loan Type: You switch to a fixed-rate mortgage from an adjustable-rate mortgage. A fixed-rate mortgage will lock your interest rate and monthly payment. This protects you from potential interest rate fluctuations in the future.
How to Keep a House in Divorce Without Refinancing
Below are the alternatives to refinance and retain the house:
1. Mortgage Assumption:
Also known as an assumable mortgage. It allows you to take over the existing mortgage without your ex-spouse’s name on it. Here, you don’t need to go through the new loan procedure all over again. This mortgage can help you get a better loan period.
Generally, mortgages approved by government agencies like the FHA, VA, and USDA, are assumable. Other conventional mortgages may or may not be assumable. Find out with your lender about your mortgage terms.
2. Quit Claim Deed:
The Quit claim deed allows you to buy your ex-spouse’s house ownership. This makes you the sole mortgage owner.
Many homeowners misunderstand a quit claim deed as a warranty deed. However, quit claim deed It is not a law-bidding document but it safeguards your future conversation. Consult with a lawyer for the documentation to avoid any future disputes.
Do You Have to Refinance After a Divorce?
Refinance after a divorce takes your spouse’s name off the loan. You get two benefits from refinancing. You can either increase the loan tenure or revise the interest rate.
Before refinancing be sure of its pros and cons as it may impact your monthly finances. Before you process for refinance, discuss it with a professional mortgage lender.
Frequently Asked Questions
Can I refinance my house after divorce if I have a low income or poor credit?
Yes, it is possible to refinance your house after divorce even with a low income or poor credit. However, your eligibility and the terms you qualify for may vary depending on your specific circumstances.
Lenders will consider factors such as your income, credit score, debt-to-income ratio, and the equity in your home.
How long do you have to refinance after a divorce?
There is no specific waiting period required after a divorce to refinance your house. You can typically refinance as soon as you are ready and meet the eligibility requirements set by lenders.
However, it's important to consider any requirements or stipulations outlined in your divorce settlement or agreement. Consulting with legal professionals can help ensure that refinancing aligns with the terms of your divorce.
What should i do immediately after divorce?
After the divorce you can consider refinancing your house. Additionally, some lenders may have specific requirements or fees related to removing an ex-spouse from the mortgage. It's advisable to obtain loan estimates from multiple lenders to compare costs and find the most favorable terms.
